DBRS Morningstar Publishes “Canadian Banks' Exposure to Non-Investment-Grade Loans on the Rise” Commentary

DBRS Limited (DBRS Morningstar) published a commentary titled “Canadian Banks' Exposure to Non-Investment-Grade Loans on the Rise,” which reviews the Canadian banks’ increasing exposure to non-investment-grade borrowers as the banks search for yield in light of low interest rates and the benign credit environment.

Key highlights include:

-- The large Canadian banks have increased their wholesale exposure to non-investment-grade borrowers.
-- The relative makeup of the banks’ wholesale portfolios has remained stable since 2014 with sufficient sector diversification to mitigate exposure concentration.
-- In our view, exposure to non-investment-grade loans subjects the Canadian banks to greater risk in the event of a severe economic downturn as those borrowers will likely face greater challenges to repay or roll over their debt.

“Non-investment-grade loans now represent 50% of the large Canadian banks’ aggregate loan portfolios versus 43% in 2014 based on our analysis of their corporate and commercial loan portfolios through Q4 2019,” said Maria-Gabriella Khoury, Senior Vice President, Global Financial Institutions Group. “While the banks have improved sector diversification, with less reliance on the traditional cyclical Energy and Commodities sectors, the increased exposure to non-investment-grade borrowers is a risk that bears monitoring.”

Notes:
A full copy of this commentary is available by contacting us at [email protected].

For more information on this credit or on this industry, visit www.dbrs.com or contact us at [email protected].

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